‘Shame’ in Washington includes deficit debate

Commentary: Obama’s failures to take a stand hamper leadership

President Barack Obama, surrounded by family members of victims of gun violence, and joined by Vice President Joe Biden, makes a statement after the Senate defeated a bipartisan measure to expand background checks for gun sales.

WASHINGTON (MarketWatch) — The failure of new gun control legislation, though predictable, has brought more anguish and frustration with Washington over the vexed and seemingly intractable issue of gun violence in this country.

But it also illustrates a critical problem that has characterized President Barack Obama’s time in office and explains why he has trouble getting anything done on economic and fiscal policy and other issues.

You can’t keep silent on gun control through two presidential campaigns and four years in office and then emerge as a credible leader on the issue in the wake of a crisis like the Newtown massacre.

The time to take a stand and be vocal is when you’re running for office. You can’t run from the issue in order to get elected and then take the lead on a proposed solution when you’re president, but that’s what Obama tried to do.

The running debate on the federal deficit and the proper balance between taxing and spending is a different kind of issue altogether, but the reason the president can’t get any traction is much the same.

For reasons of political expediency, Obama bought into, or pretended to buy into, the homespun wisdom that a multi-trillion-dollar government budget in the 21st century should be viewed in the same terms as a household budget — we can’t live beyond our means, we can’t live indefinitely on the credit card, and so on.

But taking this view on government budgets when economists have demonstrated that fiscal policy fulfills a completely different function in a modern economy is the same as clinging to creationism or denying climate change in the face of all scientific evidence to the contrary.

It is highly unlikely that Obama’s initial set of economic advisers — Austan Goolsbee, Larry Summers, and Christina Romer — failed to instruct the newly elected president in the basic principle that government deficits must increase in an economic slump in order to make up for the lack of demand from the private sector.

It is equally unlikely that a graduate of Columbia University and Harvard Law School, however untutored in economics he may have been, failed to grasp this fundamental truth.

But for political expediency he seemed to buy into the narrative of the anti-tax and anti-government propagandists that deficits are a pressing national problem, even in the absence of any proof that this is so, and this severely limited his room for maneuver.

Once again, when you’ve sacrificed conviction for expediency, you have zero credibility in leading the nation toward sensible solutions.

In the 2012 campaign, Obama did take a stand on higher taxes for the wealthy — his so-called “balanced approach” to deficit reduction — but this position still gets the fundamental issue about the deficit wrong.

We don’t need to take steps to reduce the deficit now, in a balanced fashion or any other way. It will shrink naturally — this is how a market economy works — when growth comes back.

Instead of leading the nation in the direction of stimulating growth and job creation, Obama opted to hew to the deeply flawed neoliberal doctrine of austerity that is creating a full-fledged Depression in Europe and slowing economic recovery in this country.

As a result, you have the spectacle of one of the richest nations on earth and the most powerful economy on the globe, which is able to borrow money at virtually negative interest rates, slashing social programs and retirement benefits because a bunch of billionaires say we’re broke.

Obama may be right when he calls the ability of a minority in the Senate to block a gun control measure favored by a large majority of the public “a pretty shameful day for Washington.”

But it is also shameful that a country with the resources this nation has lets so many people go unemployed and so many families sink into poverty because some very wealthy individuals want to keep their taxes low.

This week a new scholarly paper showed that a major argument for reducing the deficit was based on research that was deeply flawed in its methodology and conclusions.

A 2010 paper by economists Carmen Reinhart and Kenneth Rogoff, “Growth in a Time of Debt,” purported to prove that deficits exceeding 90% of GDP dampen growth and was seized upon by deficit scolds from Rep. Paul Ryan to Peter Peterson, the eminence grise of the anti-deficit movement, as an argument for cutting government spending immediately.

The ready acceptance of this evidence debunking their research and the feeble response by Reinhart and Rogoff affirms what many critics have claimed all along — that this thesis is wrong and a poor prescription for policy.

Even without all the errors in methodology, as Nobel economist Paul Krugman and other critics pointed out at the time, the Reinhart-Rogoff thesis falsely imputes the direction of causality.

There is a correlation, but deficits do not dampen economic growth. Rather, an economic slump results in higher deficits. The solution is not to cut the deficit in order to promote growth, but to stimulate growth — through higher government spending — in order to bring down the deficit over time.

Goolsbee, Summers, Romer and presumably Obama all knew this in 2009. But the president refused to take a stand and we are all paying the price.

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